“If only we'd known”: Theory of supply failure under two-sided information asymmetry

Abstract

Supply failures are persistent and costly in contemporary supply chains. Viewed through the lens of agency theory, such failures are potentially caused by hidden actions of the supplier under information asymmetry and goal incongruence in the buyer–supplier relationship (as principal–agent). However, by reversing the direction of information asymmetry, an alternative cause arises: hidden expectations, where the supplier has good intentions but incomplete information regarding the buyer's true preferences and specifications. Further, following a failure, the buyer forms a causal attribution and takes subsequent action. Yet these attributions suffer from cognitive biases potentially causing buyers to misattribute supply failures, leading to costly conflict and even relationship termination. Combining agency and attribution theories, this article develops a theoretical framework to explain antecedents to a buyer's attribution process under conditions of two-sided asymmetric information. It discusses the harmful relationship effects of misattribution. The framework can assist in identifying and minimizing cognitive biases causing misattribution, hence avoiding the unintentional deterioration of relationships that often follow a supply failure. A research agenda to examine hidden expectations and misattribution is also provided.